YTL Power deemed not as attractive as before
PETALING JAYA: While YTL Power International Bhd’s major shareholder’s intention to privatise the company is unknown, some analysts are saying the stock is no longer attractive due to dividends cutback and expect a challenging outlook going forward.
MIDF Investment Bank Bhd analysts Syed Muhammed Kifni and Amelia Arshad said the company was currently trading at price-earnings ratio (PER) financial year ending June 30, 2013 of nine times, which was below its 3-year average PER band of 10 to 16 times.
“At this juncture, the stock is no longer as attractive as before due to the dividend cutback in financial years 2011 and 2012. Hence we believe the share price will remain weak,” they said.
YTL Power closed three sen higher to RM1.56 last Friday.
Maybank Investment Bank analyst Yin Shao Yang said YTL Power share had declined 14% year-to-date and was now trading close to trough valuations on both PER and price-tobook value (P/BV) basis.
He noted that uncertainty continued to linger over the intentions of its major shareholder and the continued opacity of its operations.
YTL Power’s first quarter (ended Sept 30) revenue rose 15% to RM4.17bil from RM3.63bil in the same period last year and net profits stood at RM252.8mil from RM246.2mil in the same period last year.
Nevertheless, analysts said the longer term catalysts for YTL Power would be securing a power plant contract in Malaysia and further acquisitions.
“YTL Power’s recent unsuccessful bid to extend its power purchase agreement (PPA) expiring in 2015 poses limited threat to its earnings. Most of its earnings contribution are derived from overseas businesses, i. e. PowerSeraya and Wessex Water,” MIDF said, adding that PowerSeraya and Wessex Water accounted for 52% and 43% of YTL Power’s pre-tax profit respectively in 2012.
“We believe that the conditions are more favourable for YTL Power in its hunt for potential regulated assets overseas given its rising cash hoard of RM10.1bil as at Sept 30. We are also not ruling out the possibility of YTL Power’s holding company taking it private, similar to what it did with YTL Cement, via a full share swap,” the MIDF analysts said.
HwangDBS Vickers Research analyst June Ng said the non-renewal of its PPA had no impact on forecast earnings as it had not imputed any contribution beyond the expiry of its first generation PPA and its contribution was only circa 10% of financial year 2014 forecast pre-tax profit.
“YTL Power will likely continue to bid for new power plants given Malaysia’s plan to develop 4,500MW of new capacity in the country,” she said.
Ng expects a more challenging outlook for YTL Power going forward.
She said earnings from PowerSeraya and Wessex Water would remain resilient in 2013, but the following two years would be “challenging” as capacity increase in Singapore’s electricity market would eventually pressure margins and sales volume, and the lingering European crisis could limit returns from Wessex upon the expiry of the current regulatory regime in 2015.
“We expect YTL Power to continue to bid for regulated assets overseas given its huge cash hoard to compensate for potentially lower earnings from PowerSeraya and Wessex Water,” she said.